Despite three days of meetings that brought together members of both chambers and both sides of the aisle in Pennsylvania’s General Assembly, along with representatives from the gas industry, agreement on a proposed natural gas severance tax bill remained elusive, and the state’s Senate ended its last scheduled work day before the Nov. 2 election without voting on the legislation.

The chances of SB 1155 becoming law “diminish by the hour,” Senate President Pro Tem Joe Scarnati (R-Jefferson) said after he and other Senate Republican leaders met with Gov. Ed Rendell at the Governor’s Mansion in Harrisburg, Tuesday morning.

“I don’t believe that we’re any closer to a deal. Certainly, the governor has laid out some different proposals. We continue to have the same concerns we’ve had in the past on the tax rate and certain exemptions. Whether or not anybody moves further I think is yet to be seen.”

But after a second meeting with Senate Republicans on Wednesday, Rendell said lawmakers had displayed “a sense of urgency” to forge a deal prior to the election.

“I think there is a willingness to try and do it,” Rendell said Wednesday afternoon. “Does that mean we’ll reach an agreement on the rate, for example? I’m not sure, because I want to make sure that the rate is fair to the taxpayers as well as the companies…

“I think the sense of urgency is driven by the fact that we did make a promise to the people…the clear intent of it was to get this thing done and I think that the public believes that there was a promise to get it done, and I think there’s interest in trying to fulfill that intent.”

The state legislature could be called back into session to vote if its leaders agreed on a compromise. One compromise discussed in the meetings calls for a 3% tax rate in fiscal year (FY) 2010-11, 4% in FY 2011-12 and 5% thereafter. The phase-in formula includes up to a 10% deduction of the costs of production and distribution, Rendell said. The proposal would bring the state $42.2 million revenue in its first year, $133.7 million in its second year and $296 million by FY 2014-15.

In addition to the two meetings with Senate Republicans, Rendell hosted a meeting of Pennsylvania House Republicans and Democrats, along with representatives of Range Resources, Chesapeake, Chief Oil & Gas and Southwest Energy last Monday. Sen. Jay Costa (D-Allegheny), minority chair of the Senate Appropriations Committee, convened working groups on revenue distribution and collateral issues, according to Rendell, who said the groups would report back to him.

“What I pledged to the [Senate Republican] leaders is that I would go to work and try to convince Democrats who might not be real happy about where the compromise lies that it’s important to get this done. The local communities simply cannot bear up under this for very much longer without revenue.”

Negotiators have reached “basic agreement” on the state’s 45,000 shallow wells, Rendell said. “Shallow wells were always going to be exempted. The issue was did they have to self-meter, which is very expensive…we made a fairly clear exemption based on formation and depth and things like that.”

The Democrat-majority House passed legislation (SB 1155) last month that included a 39 cents/Mcf tax rate (see NGI, Oct. 4) and Rendell previously proposed a 5% extraction tax, plus 4.7 cents/Mcf. The Republican-controlled Senate failed to vote on the bill on Thursday, the final scheduled session day remaining on the Senate calendar before the election. Senate leaders have vowed not to return to the issue after the election. Rendell leaves office in January. Candidates to replace him have butted heads during their campaigns over the severance tax issue.

Process questions raised by Senate Republican leaders, who have said revenue bills must originate in the House, “are just a red herring,” according to Rendell.

“There’s no mandatory rule that says the revenue bill has to start in the House — it’s directory, not mandatory — so if we reach agreement on the other stuff, I believe we’ll find a procedure,” Rendell said. “If we don’t find a procedure, shame on us; the citizens should line us up and put us in front of a firing squad, myself included.”

Noting that the state has been producing hydrocarbons for well over 100 years, Pennsylvania state Senator Mary Jo White, chairwoman of the Environmental Resources and Energy Committee, said a tax doesn’t make sense now.

“I am not a fan of the severance tax,” she told an audience last Monday at the 2010 Marcellus Summit at Penn State. “The governor made it a condition of signing the budget. It may not make it across the finish line, I don’t know. What other business would come into your state and say, ‘I want to invest hundreds of millions of dollars in your economy’ and not ask for us to build them a plant or provide any subsidies. We’d be crawling all over ourselves to find out what we could do to attract them and we certainly wouldn’t be [implementing] a tax before it got off of the ground.”

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